Saturday, December 29, 2012

Means testing might yield faster deficit savings than gradual changes for future retirees


Congress is unlikely to look very much at entitlements this New Year’s weekend as it tries to ponder emergency legislation to avoid the “Fiscal Cliff”.
  
It’s important to remember, however, that the biggest savings in entitlement spending could come from relatively sudden changes.

Reducing the use of “fee for service” and reforms to discourage unnecessary tests and treatments may reduce costs and do the least harm to patients (actually leaving patients alone might do some good).  But down the road is rationing of procedures for people over certain ages.  “It’s no longer your turn”.

Means testing on Medicare premiums might be moderately effective, but about 5% of a seniors pay higher premiums now.  And wealthiest healthy  seniors might indeed find private plans (Advantage) cheaper.  Republicans say they want this, but it might deprive Medicare of premium revenue from seniors who use it relatively less.

On Social Security, the unpleasant and inconvenient truth is that means testing now even of existing better-off beneficiaries might yield more savings than gradual changes in retirement age or in cost of living calculations (the chained CPI debate).

If we really go over the debt ceiling (after “Timocracy” methods to stave it off for two more months), it could turn out that Social Security beneficiaries are the first to take the hit after all.  That’s because of the 1960 Supreme Court opinion (Flemming v. Nestor) denies the claim of a “property right” to an annuity based on contributions, which could lead contractors to sue that they are first in line.  If benefit payments were missed, they might not be legally recoverable.

One grim and inconvenient possibility is based on a form of “means testing” already in effect for early retirees, the maligned “Annual Earnings Test”.  It could be extended past full retirement age.  It could be extended to incorporate investment income, other pensions (which are already compromised by the “social security offset”) or even inherited money, distributed any time within a reporting year or possibly previous years.  It could take the form of a “2:1” reduction, or even total exclusion.  And unlike the current AET for early retirees, it would not save rights for future benefits after a later age.
  
Means testing could also penalize seniors who did not take early retirement more.  Social Security has already stopped the privilege of turning in benefits and allowing it to be restarted later at higher benefit rates. 
There are ways for the skies to fall in the first part of 2013, whatever Congress does this weekend. 

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